Businesses that violate competition laws face the possibility of facing very large fines from EU competition regulators.
EU competition Overview
Fines may be imposed by the Commission for:
- certain procedural infringements (Article 23(1) of Regulation 1/2003)
- when undertakings infringe Articles 101 or 102 TFEU (Article 23(2)a))
- when undertakings infringe an interim measures decision (Article 23(2)b))
- when undertakings infringe a commitment decision (Article 23(2)c))
The most common grounds for fines are violations of Article 101 or 102 TFEU, This scenario will be the main topic of the next section.
The goal of penalties is to penalize businesses that violate competition laws in order to discourage those businesses and other businesses from starting or maintaining anti-competitive practices.
According to Article 23(3) of Regulation 1/2003, the Commission is required to take into account the severity and length of the violation when calculating the appropriate fine. Furthermore, according to Article 23(2) of Regulation 1/2003 the fine cannot be greater than 10% of the entire turnover the company earned in the business year prior to the decision.
Fines imposed on companies deemed to have violated EU antitrust rules are paid into the EU’s general budget. This money is not set aside for specific expenses, but Member States’ payments to the EU budget for the next year are decreased correspondingly. As a result, the fines contribute to the EU’s financing while also reducing the burden on taxpayers.
The assessment of Fines
According to the 2006 Guidelines on Fines, the starting point for the fine is a percentage of the company’s annual sales of the product or service infringed upon. The relevant sales are typically the sales of the product or service at issue during the infringement’s most recent full business year. This percentage of the value of relevant sales is up to 30% and is decided based on the gravity of the infringements (the “gravity percentage”).
Cartels are very destructive to competition, hence their gravity proportion begins at 15%. The resulting sum is enhanced by taking into account the duration of the infringement, which is determined using a duration multiplier based on the number of days spent participating in it.
The fine can be raised (for example, if the corporation is a repeat offender) or reduced (for example, if the company’s involvement was little). In cartel situations, the fine will be enhanced by a one-time amount equal to 15%-25% of the value of one year’s sales as an extra deterrence (known as the “entry-fee”). In the case of other exceptionally serious infringements, an entry fee may also be enforced.
The penalties is limited to 10% of the undertaking’s total annual turnover generated in the business year preceding the ruling. The undertaking consists of the highest parent held liable and all of its subsidiaries. The consolidated turnover of the group of enterprises is important.
Leadership Reductions
The Commission invites enterprises that are involved in a cartel to provide evidence that will assist the Commission in detecting cartels and building its case. The first company to provide sufficient evidence of a cartel to allow the Commission to conduct a targeted inspection can be exempt from fines; subsequent companies can receive fine reductions of up to 50%, depending on the timing of their application and the added value they provide.
Reductions in Settlement
If the Commission settles with the parties in a cartel action the Commission furthermore awards a 10% reduction of the fine.
Not being able to pay
If the undertaking presents sufficiently convincing and objective proof that a) the fine is likely to materially impair the undertaking’s economic viability, b) the undertaking’s insolvency would result in a sizable loss of the value of its assets, and c) there are particular economic and social circumstances, the Commission may, in extraordinary circumstances, reduce the fine.
Legal foundation
Regulation 1/2003, Article 23, grants the Commission the authority to fine businesses. The Commission describes how it determined the fine in its ruling. In 1998, the Commission released general.
recommendations aimed at enhancing accountability and openness. In 2006, the Commission revised its Fining Guidelines. The European Courts have the authority to change the fine imposed and evaluate every facet of Commission rulings.
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Source
European commisisons
Factsheet
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